Q4 2024 Earnings Summary
- Strong Medicare Advantage Membership Growth: Elevance Health expects Medicare Advantage membership growth in the range of 7% to 9% for 2025, driven by strong retention, strategic focus on local markets, and significant growth in group MA through a large commercial account conversion.
- Anticipated Improvement in Medicaid Margins: The company projects strong improvement in Medicaid margins in the second half of 2025 due to constructive rate adjustments from state partners, aiming to achieve actuarially sound rates that align premiums with current care costs.
- Resilient Performance in Commercial Business: Elevance Health's commercial business continues to perform strongly with disciplined pricing strategies, contributing to overall stability and expected margin improvements. The company successfully priced for market conditions, resulting in strong performance in the fourth quarter, which is expected to continue into 2025.
- Persistent Elevated Medical Cost Trends in Medicaid May Pressure Margins: Elevance Health indicated that elevated cost trends in Medicaid, particularly in behavioral health and inpatient services, remained stable but elevated in the fourth quarter of 2024 and are expected to persist in the first half of 2025. These trends could continue to pressure margins in their Medicaid business.
- Current Medicaid Reimbursement Rates are Insufficient to Cover Costs: The company acknowledged that recent Medicaid rate adjustments were insufficient to cover the elevated level of cost trends. While they expect rates to improve in the back half of 2025 through ongoing discussions with state partners, there is uncertainty about the timing and extent of these adjustments, which could negatively impact profitability.
- Potential Delay in Achieving Long-Term Margin Targets Due to Business Mix Shift: Due to faster than projected growth in Carelon Services, which have lower margins in the near term, Elevance Health may experience shifts in near-term margin dynamics. This could potentially delay the achievement of their long-term operating margin targets for the Health Benefits business by 2027, potentially impacting earnings growth expectations.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +6.5% (from $42,647M in Q4 2023 to $45,442M in Q4 2024) | Driven by continued premium rate increases and robust growth in CarelonRx product revenues, similar to the Q3 2024 trends where increased premiums and volume gains drove revenue gains. This improvement suggests that, despite challenges in other segments, core revenue drivers remain effective. |
Operating Income | 39% decline (from $1,001M in Q4 2023 to $606M in Q4 2024) | The dramatic decline is largely attributable to persistent Medicaid business challenges and elevated medical cost trends, which increased the benefit expense ratio, similar to the issues observed in Q3 2024 that hurt operating margins. This underscores ongoing pressure on earnings despite some cost management efforts. |
Net Income | 50% drop (from $831M in Q4 2023 to $413M in Q4 2024) | Net income fell sharply due to a combination of decreased operating gain, higher corporate losses, and an increased effective tax rate, echoing the adverse impacts seen in Q3 2024 where lower gains and tax adjustments affected profitability. This sizable drop signals deeper profitability challenges ahead. |
Cost of Goods Sold | +24% increase (from $4,837M in Q4 2023 to $6,012M in Q4 2024) | COGS surged primarily due to accelerated pharmacy revenue growth in the CarelonRx segment, intensifying the cost pressures seen earlier (a 9.6% YoY increase in Q3 2024), as higher volumes of pharmaceuticals lead to increased variable costs. This trend highlights the trade‐off between revenue expansion and margin compression. |
Goodwill | Increase from $25,967M in Q3 2024 to $40,371M in Q4 2024 | The extraordinary jump in goodwill is driven by additional acquisitions and significant accounting adjustments, building on the Q3 2024 increases from acquisitions (e.g., BioPlus and others) while also incorporating new remeasurement adjustments. This aggressive acquisition strategy may have long‐term integration risks and valuation considerations. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Adjusted Diluted EPS | FY 2025 | no prior guidance | $34.15 to $34.85 | no prior guidance |
Operating Revenue Growth | FY 2025 | high single-digit | high single to low double-digit percent range | raised |
Consolidated Medical Loss Ratio | FY 2025 | no prior guidance | ~89.1%, plus or minus 50 basis points | no prior guidance |
Adjusted Operating Expense Ratio | FY 2025 | no prior guidance | 10.4%, plus or minus 50 basis points | no prior guidance |
Operating Cash Flow | FY 2025 | no prior guidance | ~$1 billion or 1x GAAP net income | no prior guidance |
Share Repurchases | FY 2025 | no prior guidance | ~$2.3 billion | no prior guidance |
Medicare Membership | FY 2025 | no prior guidance | 45.8 million to 46.6 million total, 2.2–2.25 million MA | no prior guidance |
Earnings Seasonality | FY 2025 | no prior guidance | Over 60% of adjusted EPS expected in first half | no prior guidance |
Dividend | FY 2025 | no prior guidance | 5% increase to $1.71 per share | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Adjusted Diluted EPS | FY 2024 | ~$33 | Summed GAAP diluted EPS of ~$25.62 from Q1 $9.59, Q2 $9.85, Q3 $4.37, Q4 $1.81(approx.) | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Medicaid Cost Trends and Margins | Consistently highlighted in Q3, Q2, Q1 as under persistent margin pressure due to rate-acuity mismatches, though optimism about eventual normalization. | Elevated costs persist, particularly in behavioral health and inpatient care, with anticipated improvement in late 2025 as rates catch up. | Sentiment shifts from ongoing pressure to confidence in second-half 2025 recovery. |
Medicare Advantage Growth and Margins | Q3, Q2, Q1 focus on balancing membership vs. margin, exiting underperforming markets, and addressing CMS rate cuts. | Reaffirmed 7%–9% growth for 2025, margins remain below long-term targets but stabilizing; still affected by funding cuts and rate changes. | Consistent emphasis on growth vs. margin trade-offs, with some improvement signaled in Q4. |
Carelon Services | Stressed strong quarterly growth in Q3, Q2, Q1, but margins lag initially due to newer capabilities and risk arrangements. | Faster-than-expected growth (over 30% CAGR) continues, creating near-term margin and mix-shift challenges. | Sustained high growth, with ongoing short-term margin pressures. |
Commercial Performance (including Individual Exchange) | Consistently resilient in Q3, Q2, Q1 with solid exchange membership gains and strategic market expansions. | Stable commercial results, record retention in national accounts, and 30%+ ACA growth; expanded offerings in new geographies. | Ongoing robust performance, driven by competitive products and geographic expansion. |
Integration of BioPlus | Mentioned in Q2 (integration, specialty pharmacy strategy) and Q1 (detailed launch plans); absent in Q3. | No discussion in Q4 [No mention]. | No longer mentioned after Q1. |
Large Commercial Account Conversion | Not referenced in Q3, Q2, Q1. | Newly emphasized driver of Medicare Advantage gains; a major commercial client converting to MA business. | New factor highlighted in Q4 as a key contributor to MA growth. |
EPS Outlook | Q3 showed reduced 2025 EPS forecast (mid-single-digit) signaling caution; Q2, Q1 reaffirmed 12%+ long-term growth. | Reiterated confidence in long-term EPS growth, with 2025 guidance in line ($34.15–$34.85); no cut mentioned. | Caution in Q3 but renewed confidence in Q4. |
Faster Carelon Growth & Medicaid Rate Mismatch | Q3 and Q2 flagged time-bound Medicaid rate disconnect and Carelon’s high growth as twin effects on margin; not explicitly addressed in Q1. | Recognized as influential to near-term margins, but long-term bullish on Carelon’s embedded earnings power. | Recurring headwinds, yet seen as manageable with strong long-run outlook. |
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Medicare Advantage Growth and Margins
Q: Can you clarify your Medicare Advantage growth and margin outlook?
A: Elevance Health expects Medicare Advantage enrollment growth of 7% to 9% in 2025, driven by strong member retention and strategic group membership growth. Individual MA growth is in line with expectations, and the company is confident in maintaining margins through disciplined cost management and product positioning. They do not anticipate significant growth beyond current levels for the rest of the year but expect strong retention. -
Medicaid Trends and MLR Guidance
Q: What are your expectations for Medicaid trends and MLR in 2025?
A: Medicaid cost trends are expected to remain elevated in the first half of 2025, particularly in behavioral health and inpatient services. Current rates have not fully caught up to these cost trends, so Elevance Health is taking a prudent stance on how quickly Medicaid margins will rebound. They anticipate improvement in the second half as rate adjustments take effect but expect margins to remain below long-term targets in the near term. -
Commercial Cost Trends and Pricing
Q: How are commercial cost trends impacting your pricing and margins?
A: Commercial performance remained strong, with cost trends developing as expected and priced accordingly. The company anticipates commercial cost trends to stay above historical averages in 2025 but has accounted for this in their pricing strategy. Retention is strong, pricing is disciplined, and margins remain robust. -
Impact of Part D Redesign on MLR
Q: What is the impact of the Part D redesign on your MLR?
A: For 2025, Elevance Health is guiding to a Medical Loss Ratio (MLR) of 89.1%, approximately 60 basis points higher than the prior year at the midpoint. This increase is driven by strategic growth in Medicare, including Part D changes, acquisitions, and a prudent view on medical cost trends. The Part D redesign has increased the direct subsidy, contributing to a higher MLR. -
Carelon Growth and Margins
Q: What are your growth expectations for Carelon and its impact on margins?
A: Carelon Services is expected to grow over a 30% Compound Annual Growth Rate (CAGR) since 2022, significantly above the original target range. This accelerated growth, including over 50% growth in the services segment, is positive for earnings but shifts near-term margin dynamics as newer capabilities take time to reach mature margins. Organic growth outside of acquisitions like CareBridge is well above 20%. -
Advanced Rate Notice and Regulatory Implications
Q: How do you view the recent MA rate notice and its implications?
A: Elevance Health is pleased with the direction of the advanced Medicare Advantage rate notice, seeing it as progress toward more adequate funding. However, they believe it is still insufficient given the cost trends observed over the past year. They look forward to working with the administration on recommended changes, particularly regarding reforms in the Part D risk model. -
Long-term Margin Targets
Q: Have your long-term margin targets changed?
A: While Elevance Health remains committed to its long-term financial targets, faster-than-projected growth in Carelon has shifted near-term margin dynamics. The company acknowledges that business mix and timing have changed due to accelerated Carelon growth, but they remain confident in the embedded earnings power of their businesses. -
Acquisition Strategy
Q: What are your priorities for acquisitions going forward?
A: Elevance Health focuses on enhancing capabilities that deliver whole health solutions, affordability, and improved patient experiences. They are interested in areas like specialty trends, data fragmentation, and opportunities in technology and data to enhance the overall experience. The company maintains a strategy of identifying areas of complexity and solving them with differentiated, risk-based solutions. -
Seasonality and Earnings Guidance
Q: What is your expected earnings seasonality for 2025?
A: Adjusted earnings per share are expected to be weighted more toward the first half of the year, with slightly more than 60% of full-year earnings occurring in that period. Within the first half, a little more than half of those earnings are anticipated in the first quarter. This reflects typical seasonal dynamics and the evolving business mix. -
Exchanges and Subsidies
Q: What are your expectations for the ACA exchanges and subsidies?
A: Elevance Health is pleased with the performance of its ACA exchange business and is expanding into additional markets. They acknowledge the possibility of subsidy reductions or eliminations, which could shrink the market. However, they believe the exchange business remains solid and complementary to their overall strategy. Effectuation rates have been consistent with prior years, and guidance incorporates conservative assumptions. -
Puerto Rico Business Performance
Q: How is your Puerto Rico business performing?
A: The company made strategic decisions to reduce supplemental benefits to balance margin and membership in Puerto Rico. This resulted in solid success, stabilizing the environment in 2024. They feel well-positioned strategically in Puerto Rico and are continuing the same strategy into 2025. -
Medicare Advantage Distribution Actions
Q: What actions have you taken on MA distribution that affect growth?
A: Elevance Health has been strategic in targeting growth by marketplace, geography, and product, focusing on individual MA and duals business. They have achieved strong retention and are prudent about future growth. The company emphasizes that growth aligns with their capabilities and long-term strategy. -
Commercial ASO Revenue Guidance
Q: Why is your ASO fee revenue guidance flat despite membership growth?
A: The flat fee revenue guidance is due to a shift from fee-based to risk-based contracts within Carelon Services. A portion of new wins and expansions are expected to convert to risk-based arrangements, with revenue recorded as premium rather than service fees. -
Expectations for Commercial Cost Trends
Q: What are your commercial cost trend expectations for 2025?
A: The company expects commercial cost trends to remain above historical averages but has priced accordingly. Key cost drivers include inpatient medical and outpatient emergency services. They plan to expand margins through product mix and increased penetration of specialty products. -
Medicaid Rate Updates and Margins
Q: How are Medicaid rate updates affecting your margins?
A: Approximately 41% of Medicaid members had rates tied to January updates, which came in line with expectations but were insufficient. Elevance Health is working with state partners to obtain actuarially sound rates. July rates will be critical, and they expect strong improvement in Medicaid margins in the back half of the year.